U.S Business Views on Current Developments in the WTO
Senior Vice
President, United States Council for International Business
To a Workshop organized on
“The Future of the WTO as a
Multilateral Organization”
Humboldt University
Berlin, Germany
March 6, 2006
I am pleased to participate in this workshop on the “Future
of the WTO as a Multilateral Institution.”
It is an honor to represent U.S. business at a meeting in this historic
university in this historic city. While
I was in Berlin several times when I was in the U.S. diplomatic service, this
is my first visit back since 1992 when I was a member of the U.S. government
team preparing for the Munich Economic Summit that same year.
Martin Menden asked me to provide an American business
perspective on current developments in the WTO with specific reference to the
effects of WTO rulings on U.S. industry.
In addressing this topic, I would like to divide my presentation
into two parts. In the first part, I
will talk about U.S. business views regarding the WTO’s dispute settlement
system. I will offer some general
remarks about that system and then refer to the large number of disputes
brought by and against the U.S. including three important, recent cases. I will note the political difficulties that
face the U.S. Administration in complying with WTO rulings. Finally, I will offer some suggestions about
what might be done to improve the WTO’s dispute settlement system, drawing on a
policy statement prepared by USCIB’s international affiliate, the International
Chamber of Commerce.
In the second part of my presentation, I will briefly
discuss U.S. business goals for the current round of trade negotiations in the
WTO.
Before addressing these questions, some general remarks
about U.S. business attitudes toward the WTO are in order. At the outset, I would note that U.S.
business views about the WTO are not monolithic, which I suspect is also the
case for European business. Most
American businesses and, in particular, the larger global companies which
constitute the membership of USCIB are strongly in favor of a rule-based,
transparent multilateral trading system with the WTO at its center. But domestically-oriented companies or those
feeling more directly the pinch of international competition tend to be more
skeptical about the benefits of trade liberalization and suspicious about the
WTO as an institution. We might place
U.S. steel companies and textile manufacturers in that camp. While these companies are not economic
powerhouses, their voices carry considerable weight in the U.S. Congress and
the popular media. This situation makes
discussions about trade issues and the debates about trade legislation frequently
contentious, now more than ever.
For our part, USCIB and our affiliates, the ICC and BIAC,
continue to believe that a strong multilateral trading system is clearly in our
interest, and we would like to see further progress in building that system,
continuing the trend that started with the creation of the GATT in 1947.
Dispute Settlement: A Work in Progress
Let me now turn to WTO dispute settlement. Over the years, USCIB and the ICC have taken
the position that the WTO’s dispute settlement system is the cornerstone of a
rule-based multilateral trading regime.
We see that system as a market-opening tool designed to guarantee that
WTO members respect their commitments and ensure reciprocal treatment to each
other.
The Dispute Settlement Understanding (DSU) in the WTO is a
vast improvement over what previously existed under the GATT. The GATT, of course, also had responsibility
for managing trade disputes, but it was relatively ineffective because any one
member state, including the defending country in a proceeding, could block
implementation of a GATT ruling. Thus,
far too many important trade disputes lingered on for years without
resolution. The dispute settlement
system of the WTO has changed all that.
The DSU was set up for the specific purpose of establishing
a multilateral legal framework for the expeditious resolution of trade disputes
between WTO members in order to ensure the preservation of their international
rights and obligations. In the nine
years since its creation, the system, in our view, has functioned reasonably
well in resolving the vast majority of the disputes brought before the WTO.
The U.S. has been one of the most active litigants in the
WTO both as a plaintiff and defendant.
According to statistics maintained by the Office of the U.S. Trade
Representative (USTR), as of November 2005, the U.S. had brought 76 complaints
to the WTO. Of these, 52 cases were
concluded and 3 others were merged with other complaints. USTR reports that 24 cases were resolved to
the satisfaction of the U.S. without litigation, implying some sort of
out-of-court settlement. The U.S. won
on the core issues in another 24 cases, while losing on the core issues in only
3 instances.
During that same period, other WTO members brought 105
complaints against the U.S. 54 of those
cases were completed and 22 merged with other complaints. 15 cases were resolved to the satisfaction
of the U.S. without litigation. The
U.S. won on the core issues in 3 cases, while losing in 26 cases.
This active case load tells us much about the emerging
rule-based system. An increasing
proportion of new cases result from regulatory activity by governments such as
the EU’s protection of trademarks and geographical indications for agricultural
products and foodstuffs, the EU’s ban on imports of meat containing growth
hormones, U.S. actions to protect sea turtles from commercial fishermen, and
the plethora of cases involving U.S. administration of its antidumping and
countervailing duty laws.
It is difficult to quantify the financial impact on
companies of WTO dispute settlement proceedings. In many, if not most, cases the financial consequences for a
company of a government winning or losing a particular case are probably small
– at least on a macro scale. Some of
the most contentious cases brought before the WTO, e.g. the EU’s banana regime
and EU bans on beef hormones and genetically modified crops, affect only a
small volume of trade.
Nonetheless, the financial, economic, and overall policy
impacts of three recent cases brought before the WTO are – or may turn out to
be – highly significant. These are: (a)
the Byrd Amendment case; (b) the U.S.-EU dispute over Foreign Sales Corporation
(FSC) taxes; and (c) large civil aircraft involving Airbus and Boeing.
The Byrd Amendment case stems from U.S. legislation that
amended a tariff law to transfer duties collected under U.S. antidumping and
countervailing duty orders from the U.S. Treasury to the companies that filed
the petitions. American steel and
lumber producers were among the main beneficiaries of this legislation to the
tune of billions of U.S. dollars. A
lengthy legal process eventually resulted in the WTO’s Dispute Settlement Body
authorizing a number of countries to retaliate against the U.S. Accordingly, in
2005, Canada and the EU began imposing additional duties of 15% on a list of
U.S. products. Shortly thereafter,
Mexico imposed duties on selected U.S. exports of between 9% and 30%, and Japan
followed suit with a levy of 15%. U.S.
Customs reported that dumping and countervailing duty distributions amounted to
$142 million in 2005. U.S. exports
affected by the retaliation include such things as sweet corn, eyeglass frames,
writing pads, and clothing. In February
of this year, the U.S. Congress finally overturned the Byrd Amendment, and the
President signed the legislation. However, the bill had a major loophole in
permitting the distribution to private companies of duties collected before
October 2007. Against that background,
the countries that brought the case to the WTO are still deciding on their next
course of action, although the EU and Canada have signaled their intention to
keep the punitive duties in place
Another important case involving the U.S. and EU concerns
the tax treatment of co-called Foreign Sales Corporations. This is an extremely complicated legal
wrangle dating back to 1998, and it’s not over yet. The financial stakes for certain large companies that availed
themselves of this tax break are substantial.
The U.S. Congress has twice passed legislation to bring the U.S. into
compliance with its international obligations, but in a number of rulings WTO
Dispute Panels and the Appellate Body have determined that the U.S. failed to
do so. Initially, the Dispute
Settlement Body authorized the EU to impose $4 billion in trade sanctions. In its final ruling on February 13, 2006,
the DSB determined that the bill signed into law by the President in October
2004 failed to meet its rulings and recommendations because the legislation
allowed a phase out of the benefits over a two-year period and also
grandfathered other tax benefits in leasing contracts. In the absence of a settlement between the
U.S. and EU over the next three months, the DSB could authorize EU retaliation
in the form of countermeasures and suspended concessions amounting to as much
as $2.4 billion.
The final case – or more properly -- cases concern U.S. and
EU subsidization of large civil aircraft.
The U.S. brought the initial case, alleging that EU launch aid to Airbus
violated WTO rules. The EU countered
with its own suit, contending that the U.S. provided illegal financial aid to
Boeing. The U.S. and EU are currently
engaged in another huge procedural argument about whether there should be two
cases or whether they should be merged.
There are also major problems in providing WTO panelists with
information deemed proprietary or classified for national security
reasons. If the FSC case is any guide,
this proceeding could drag on for months, if not years – not surprising given
the commercial importance of the civil aircraft business on both sides of the
Atlantic.
These three cases illustrate the complexity and high cost of
WTO litigation. In fact, many
developing countries charge that they simply cannot afford to protect their
rights in the same way as richer WTO members.
The U.S. business community is also concerned about the costs and
cumbersome nature of WTO dispute settlement proceedings, but most would
probably agree that they are better off with a system that produces results in
contrast to the ineffective process under the GATT.
The Byrd Amendment and FSC cases underline the political
complexity of WTO dispute settlement procedures for a country such as the U.S.
that has a Congress that is not responsible to the executive branch, as is the
case in many parliamentary democracies.
Therefore, compliance with WTO rulings can be difficult and politically
painful.
Any decision requiring the repeal of existing legislation
and/or the passage of new laws, as in the Byrd Amendment and Foreign Sales
Corporation cases can be a real headache for the executive branch. Members of Congress bitterly resent having
to change laws on “orders” from an international organization. Nonetheless, despite all these difficulties,
U.S. compliance with WTO findings is relatively good.
While the WTO’s dispute settlement system has been
relatively effective, it is by no means perfect. USCIB and the ICC have taken the position that some improvements
in the system would be desirable so long as they are put in place without
reopening negotiations of the basic provisions of the DSU.
Thus, we have called for:
·
Changes in the composition of Dispute Panels.
·
A better, more complete exchange of information during the
proceedings.
·
Greater predictability to ensure that rulings do not add to
or diminish the rights and obligations of WTO members.
·
And a more expeditious process.
One especially important point from the standpoint of the
business community concerns the implementation of decisions under the DSU. Currently, there is no assurance of
implementation of any ruling made by a Dispute Panel or the Appellate
Body. Losing WTO members can exercise
their rights by providing compensation or accepting retaliation. In effect, this transfers the financial burden
of a lost decision to another industry or sector of the economy which may have
no connection whatsoever with the issues in dispute. Furthermore, while threats of retaliation are infrequent, they
can be destabilizing if they affect large volumes of trade as in the Foreign
Sales Corporation tax case.
With respect to retaliation, the ICC has proposed:
·
That consideration be given to the need to protect exporters
that would otherwise be harmed by the sudden imposition of retaliatory
measures; and
·
That a fast-track procedure be created to establish whether
a WTO member, after retaliatory measures have been enforced, is in compliance
with the appropriate WTO panel report.
In sum, a primary objective for any improvements or
clarifications of the WTO dispute settlement system should be to ensure that
when formal adjudications become unavoidable, WTO decisions are implemented
fully and fairly. WTO members should
also take great care in deciding whether to bring a case to the WTO and rely
increasingly, wherever possible, on mediation and arbitration to resolve the
dispute.
U.S.
Business Objectives in the Doha Round Negotiations
I would like to turn now to the second issue I raised at the
outset, namely, U.S. business views on the current round of trade negotiations.
From the start, that is dating back to the failed Seattle
Ministerial and even before, U.S. business has pushed for an ambitious result
in these trade negotiations. That
remains our position despite all the missed deadlines and inconclusive meetings
held since 2001.
Needless to say, the glacial pace of the trade talks has
disappointed us. Political will is
clearly missing among the major players.
So far, political posturing and gamesmanship have gained the upper hand
in these negotiations. All parties are
at fault. It is fair to ask whether an
organization of this unwieldy size can ever hope to function effectively in the
field of new trade liberalization as distinct from dispute settlement. As some observers have noted, the pattern of
past trade rounds may be drawing to a close.
Whatever the outcome of the Doha Round, it is hard to imagine another
comprehensive, multilateral trade round for the foreseeable future.
Despite this uncertain outlook, U.S. business and many in
the international business community still want a successful, comprehensive,
balanced, and ambitious result. We have
called on WTO members to redouble their efforts to bring the Doha Round to a
successful conclusion this year. We do
not want a face-saving political mini-deal that will offer little in the way of
new commercial opportunities.
Completion of the round by the end of 2006, as agreed at Hong Kong, is
an achievable goal. In the final
analysis, the challenge is more political than technical.
A successful Doha Round can make an important contribution
to raising global living standards. And
the biggest winners are likely to be developing countries if developed
countries are prepared to provide meaningful access to their markets. Key developing countries such as Brazil,
India, and China must also do their part to ensure a balanced outcome.
U.S. business positions on the key issues under negotiation
are well known and have not changed since the start of the negotiations.
·
First, we want the elimination or substantial reduction of
tariffs and non-tariff barriers on industrial goods.
·
Second, we want an equally ambitious result in agriculture
covering the three pillars of export subsidies, market access, and domestic
support. Movement on agricultural trade
liberalization is essential for progress on all other issues under negotiation
since agricultural trade figures so importantly in the commerce of developing
countries. There can be no meaningful
Doha result without a major agricultural package.
·
Third, we want major commitments to free up services
trade. The goal here is to achieve
progressively higher levels of liberalization on the broadest possible ranges
of sectors and across all modes of services supply. While there a few encouraging signs of late in the services
negotiations, they have tended to lag behind even the grudging pace of the
talks on industrial goods and agriculture.
The stakes for business are enormous here.
·
Fourth, we hope for a strong agreement on a set of trade
facilitation rights and obligations that are fully integrated into theWTO and
that will bring about progressive improvements in trade facilitation.
Conclusion
Let me stop there.
At this point, I would simply reiterate that U.S. business is strongly
committed to the multilateral trading system and sees the WTO as the most
effective instrument not only in enforcing existing trade rules, but also in
promoting even greater trade liberalization.
The WTO is under challenge today because of the uncertain outlook for
the Doha Round. It is incumbent on both
the governments and the private sector to work hard to help the WTO meet that
challenge.
More on USCIB’s Trade Policy
Committee
Humboldt University website
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